A report by Joydeep Ghosh in the Business Standard makes for shocking reading. It shatters the myth that investing in Blue Chip stocks over a long period of time always guarantee’s success. Instead, the report reveals that the return from such stocks over a period of 20 years is even lower than what you would’ve got from a fixed deposit.
It is astonishing to learn that Blue Chip stocks like Hindalco, Tata Steel, Colgate-Palmolive, Ashok Leyland, Reliance Infrastructure, Tata Chemicals and Tata Global Beverages have offered a return which is less than the average Consumer Price Index (CPI) -based inflation (for industrial workers) of 7.55 per cent. Even Titan Industries, Rakesh Jhunjhunwala’s crown jewel stock, has barely eked out an average return of 11.68 per cent over 20 years.
PSU & OMC stocks were as expected in the dog house. Hindustan Petroleum Corporation, Steel Authority of India Ltd and Bharat Petroleum Corporation Ltd did not given a return which matched the inflation rate.
Nilesh Shah of Axis Capital put the issue in prespective by pointing out that even for blue-chip stocks, investors had to ensure that they were buying at a good price. He also said that if the blue-chip changes its business decision, it’s time to evaluate and exit the stock.
He explained that while Hindalco and Tata Steel were companies with great cash flows, their business models changed when they went for big acquisitions and became debt-laden. Others like Colgate-Palmolive suffered from intense competition from other heavy weights like Proctor & Gamble and HUL.
Gul Tekchandani also made the sensible suggestion that investors had to constantly monitor and check numbers like return on equity and return on capital, based on quarterly or half-yearly numbers. “You just can’t buy a stock and hold it forever. Give it time for three years to perform and then exit. Also, when the economic growth rate comes down from eight per cent to four per cent, some sectors are bound to suffer,” he was reported as saying.
V K Sharma of HDFC Securities cautioned that stocks, especially cyclical ones, need to be sold before they peak. He suggested that the best way for passive investors, without passion or time for research, is that they should invest in index exchange-traded funds (ETFs), as good stocks are held in the index and bad ones get thrown out.